We are now in update territory for June 30 balancing companies, and it will be a real test of the resilience of corporate Australia if we can get away without a string of downgrades over the next month.
We have already seen a number of companies cut their outlooks.
Metcash (MTS) has been the most dramatic and largest so far, downgrading its outlook (it reports its final figures a week yesterday) last week in revealing $604 million of losses and asset impairments. Metcash also took the dramatic step of dropping its dividend for the June 30 half year and all of 2015-16.
McPhersons (MCP) also downgraded its outlook, as has resource service groups WorleyParsons (WOR) and Cardno (CDD), while a host of small and medium miners will report great blobs of red ink because of the slide in commodity prices.
Logistics company Qube Holdings (QUB) also revealed a downgrade last week, ruling out earnings growth from its main ports and bulk handling division in 2015-16. It said its mining-related contracts were coming to an end and trading conditions in its key markets were challenging.
Virtus Healthcare (VRT) was another whose shares were pounded last week after a downgrade and Bega Cheese (BGA) cuts its earnings forecast in May because of lower global milk demand and prices.
Myer (MYR) has already downgraded its 2014-15 results as it reviews itself for a major revamp. Woolies issued a downgrade earlier in the year, and is being watched closely by some analysts for another cut in earnings forecasts.
Luxury retailer OrotonGroup (ORL) has also downgraded earnings – its May warning was the second so far this year. Kathmandu (KMD) is another retailer which has an earnings downgrade in the market.
The latest downgrade was on Friday afternoon from Nine Entertainment Co (NEC) which will see the company’s shares come under pressure this morning.
Nine’s downgrade will also see the shares of Seven West Media, the Ten network, Fairfax Media, APN, Prime Media and Southern Cross Media all questioned by investors.
Seven was quick to initial an early downgrade for the full year (and the December half year) at the AGM late last year. Management didn’t use last week’s extraordinary meeting of shareholders (which approved the revamp of the company’s capital base and an issue) to provide a trading update, while Ten is still talking to Foxtel about a possible placement and capital raising and would be expected to provide an update if that happens.
Nine blamed soft conditions in the advertising market for a downgrade in its full-year earnings guidance.
In its statement on Friday it told investors it expected earnings before interest, taxes, depreciation, and amortisation would now be between $285 million and $290 million, down from $311 million forecast in November.
“This reduction in earnings outlook reflects a softer than anticipated free-to-air market in the second half, which is now expected to be in low single digit decline, driven by particularly soft conditions in May and June,” Nine said in the statement issued at 4.33 pm ahead of the long weekend.
"This guidance remains subject to market conditions over the balance of the year and usual year end close procedures, including board and external audit verification."
Nine said it still intends to raise its annual dividend payout ratio to between 80% and 100%. Nine will have a final dividend of about 5 cents, following its full-year results in August.
Nine will report a big topline profit for 2014-15, thanks to the recent sale of its events business for a healthy premium in a $640 million deal, putting the company in a net cash-positive position which also saw it lift its share buyback. The problems will be in the details of the underlying profit.
